The regulator’s statutory inquiry report, published yesterday, says the development charity failed to comply with its own due diligence and monitoring procedures and had insufficient measures in place to control, monitor and document how the charity’s money was spent.

The commission opened an inquiry into the charity in November 2013. The previous year, the charity submitted serious incident reports to the commission about financial irregularities and possible fraud in the charity’s field offices in Sudan and Gambia.

In a statement yesterday, the commission said: "The concerns were originally dealt with as part of a regulatory compliance case, but the commission’s engagement escalated when the charity’s own reassurances to the regulator served instead to highlight the sheer scale of concerns about the charity’s financial management, specifically its due diligence, monitoring and oversight of its field offices."

The inquiry was set up to examine concerns about significant financial loss to the charity, serious governance failures, poor financial controls and the possible loss or misuse of charitable funds.

The commission was also concerned that the lack of proper checks could mean the charity was inadvertently funding a proscribed terrorist organisation.

In 2015, the commission ordered the trustees to carry out a series of actions, including reviewing the governance and financial management of the charity, and auditing the charity’s numerous bank accounts across the world.

But a year later the commission found the charity had complied with only "a small number" of the actions, so it appointed an interim manager.

The inquiry concluded that, although it had found no evidence that Muslim Aid had illegally funded any terrorist organisations, the lack of monitoring and evidencing meant trustees were also unable to prove that all funds had been properly applied.

The report on the inquiry says the failure of the charity to comply with its own due diligence and monitoring procedures had exposed the charity’s assets and reputation to undue risk.

It says that because the charity had allowed overseas external partners to use its name and logo there had been a risk of harm to the charity’s reputation.

The report concludes: "The then board of trustees fell short of the standards required and expected, particularly of a large, well-known and trusted charity with substantial operations and reach.

"The then board of trustees did not meet with their duties to act with reasonable care and skill and fell short of their responsibilities under charity law."

Since the Muslim Aid appointed Jehangir Malik as its new chief executive in September 2016 and the charity was reconstructed as a charitable incorporated organisaton with a new trustee board at the beginning of 2018, "significant progress has been made to address the governance and improve oversight and control", the report says.

The commission issued the new CIO with an action plan and said it would continue to monitor its progress over the next two years.

In a statement, Malik said: "After a challenging period, the board and the senior leadership team have initiated a new governance structure that has put in place model checks and balances to ensure the highest of professional operating standards.

"Muslim Aid has a 30-year legacy of excellent field work, serving humanity. This is a strong foundation and the improvements put in place, under the supervision of this inquiry process, will ensure that the future of the charity is robust.

"Muslim Aid has emerged a more transparent organisation, more fit for purpose for the current strategic requirements of donors and beneficiaries alike. Muslim Aid is entering an exciting new phase."

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